Positives:
- The Employment Cost Index for Q2 saw private sector wages and salaries rise 2.6% y/o/y, the most since Q1 2015 and a pick up from the 2% gain in Q1. Benefits also rose by the most since Q1 2015 and by 1.7% y/o/y vs 1.2% in Q1.
- The Chicago PMI for July fell 1 pt to 55.8 but that was a bit higher than the estimate of 54. Smoothing out this very volatile number puts the 3 month average at 54 and the 6 month average to 52.2. Pointing to a possible economic rebound in Q3 from the punk 1st half of the year, “companies increased their inventories at the fastest pace since October 2015, building on June’s double digit gain.”
- The July Richmond manufacturing survey improved by 20 pts to +10, well better than the estimate of -5. The Dallas mfr’g index improved to -1.3 from -18.3 and is the least negative since December 2014.
- The Conference Board’s US consumer confidence index fell a hair to 97.3 in July from a revised 97.4 in June (revised from 98) but that was slightly better than the estimate of 96. The Present Situation component rose to the best level since September but Expectations moderated a touch. The data is “suggesting the economy will continue to expand at a moderate pace” while “consumers remain cautiously optimistic about growth in the near term” according to the Conference Board.
- New home sales in June totaled 592k annualized, 32k more than expected and up from 572k in May which was revised up by 21k. Sales now are at the most since February ’08 and continue to creep closer to the 25 yr average of 715k. Months’ supply fell to 4.9 from 5.1. The median price was up by 6.1% y/o/y to back above $300k.
- According to the Case Shiller home price index, prices fell for a 2nd straight month but only by the slightest amount. On a y/o/y basis, prices were higher by 5.2% but that was the slowest pace of gain since September. In order to bring back more forcefully the 1st time buyer, price gains need to slow to closer to the rate of inflation.
- The BoJ only modestly increased their QE program via more stock purchases while staying on hold with NIRP and JGB QE. Have they reached a logistical end of the road and if so, what does that mean broadly for global sovereign bonds?
- The Japanese jobless rate fell one tenth to 3.1%, the lowest since 1995 as hires exceeded the increase in the labor force and the jobs to applicant ratio rose to 1.37, the most since August 1991. Industrial production in June beat expectations. Exports in June fell 7.4% y/o/y but not as bad as the 11.3% drop that was anticipated.
- Hong Kong exports fell for the 15th month in the past 16 y/o/y. They fell 1% in June from last year but that was a bit better than the estimate of down 1.6%. While China said imports from Hong Kong in June rose 71% y/o/y, Hong Kong said exports to China were up just 1.8% y/o/y.
- South Korea’s economy grew 3.2% y/o/y in Q2, above the estimate of up 3%. Taiwan’s economy grew .7% y/o/y after 3 straight quarters of declines.
- Notwithstanding the results of the UK vote, Economic confidence in the Eurozone in July rose a touch to 104.6 from 104.4 in June and vs 104.6 in May. That was 1 pt more than expected and compares with the multi year high of 106.6 in December. Consumer confidence softened a bit but was offset by gains in manufacturing, services, retail and construction.
- The number of unemployed in Germany in July fell 7k, better than the expected drop of 4k. The unemployment rate held at 6.1% which is the lowest since reunification.
- Q2 GDP in the UK rose .6% q/o/q and 2.2% y/o/y, both a tenth more than expected. That y/o/y gain was the best since Q2 of 2015 but we certainly know to expect a sharp slowdown in Q3.
- Money supply growth in June in the eurozone rose 5% y/o/y, in line with the estimate and right in line with the average year to date. Household loans rose 1.7% y/o/y up a touch from the 1.6% gain seen in May and the same pace of gains were seen to non financial companies.
Negatives:
- The Fed revealed again that they have completely blown their exit opportunities.
- With the downward revision to Q1 to .8% and the Q2 growth rate of just 1.2% (well below the estimate of 2.5%) we now have a 1% average rate of growth so far this year and 1.2% over the past 4 quarters. Nominal GDP was just 3.4% in Q2. Inventory destocking and declines in capital investment were the main drags. Consumer spending rebounded and real final sales are averaging 1.8% over the past 2 quarters.
- Initial jobless claims totaled 266k, 4k more than expected and up from a revised 252k last week (initially was 253k). Because a 270k print 5 weeks ago drops out of the 4 week average, the new one fell to 257k from 258k last week and is just a hair above the lowest level since 1973. Continuing claims, delayed by a week, rose by 7k after the prior week’s drop of 21k.
- Pending home sales in June grew by .2% m/o/m which was below the estimate of up 1.2%. The NAR said “unfortunately for prospective buyers trying to take advantage of exceptionally low mortgage rates, housing inventory at the end of last month was down almost 6% from a yr ago, and home prices are showing little evidence of slowing to a healthier pace that more closely mirrors wage and income growth. Until inventory conditions markedly improve, far too many prospective buyers are likely to run into situations of either being priced out of the market or outbid on the very few properties available for sale.”
- Mortgage applications to buy a home fell 3.3% w/o/w after falling 2% in the week prior. This brings the index to the lowest level since early March while still up 12% y/o/y. Refi applications fell 15% w/o/w likely in response to the 4 week high in mortgage rates even though they still remain ridiculously low. They are up 72% y/o/y.
- Core durable goods order rose .2% m/o/m in June with May revised down by one tenth to a decline of .5%. It was in line with the estimate for up .2% but was still down 4.2% y/o/y. Durable goods ex transports were much weaker than expected as they fell .5% vs the estimate of up .3%. There was a .4% m/o/m drop in the shipments of core goods, well worse than the estimate of up .4%. Shipments of core goods were down 5.8% y/o/y.
- The Markit PMI services index for July slowed to 50.9, a 5 month low and down from 51.4 in June. It’s also the 2nd lowest print in years. Markit summed up the report by saying “The US service sector remained stuck in a low gear at the start of the third quarter of 2016, with growth of activity remaining subdued amid a slower rise in new business. This is particularly disappointing given the decent numbers posted by the manufacturing sector last week. A bit more encouraging was the rebound in business confidence following June’s survey low, suggesting that a return to stronger growth will be possible once the current soft patch comes to an end. Whether this will be before the presidential election or not remains to be seen, however.”
- The final read on July UoM consumer confidence saw its index fall to 90 from 93.5 in June. This though is a touch above the preliminary print of 89.5 and is basically in line with the estimate of 90.2. Confidence has fallen almost 5 pts over the past 2 months to the 2nd lowest print since October 2015. It is also below the average year to date of 91.7 which compares to the average in 2015 of 92.9 in 2015.
- Japanese overall household spending fell 2.2% y/o/y in June, much worse than the estimate of down .4%. Retail sales within that also fell more than expected y/o/y. Vehicle production, housing starts and construction orders were all negative y/o/y and inflation missed the estimates.
- Eurozone GDP for Q2 slowed q/o/q, rising by .3% q/o/q but was in line with expectations after a .6% gain in Q1. The y/o/y growth rate was 1.6% vs 1.7% in Q1. As we know this was pre UK vote, it is somewhat old news. The French economy was stagnant in Q2 vs Q1 as was Austria’s. Spain’s economy continues to be a bright spot as it grew by .7% q/o/q and 3.2% y/o/y, both about in line with forecasts. We’ll see Germany’s GDP report in a few weeks.
- Good for Mario, not so much the European populace, Eurozone inflation both headline and core rose one tenth more than expected. The core y/o/y rate of .9% matches a 4 month high.
- Not surprisingly, UK consumer confidence in July took a sharp hit as the GFK index fell to -12 from -1. It’s the biggest one month drop since 1990. The estimate was for a decline to -8 and the -12 print was the worst since December 2013. As to what comes next, GFK said “Its future trajectory depends on whether we enter a new period of damaging economic uncertainty or restore confidence by embracing a positive stance on negotiating a new deal for the UK.”
- As for economic sentiment in the UK, it also fell sharply in July to 102.6, the weakest since June 2013 from 107 last month with particular weakness in consumer and retail confidence but manufacturing, services and construction confidence fell as well.
- The July UK retail sales CBI index fell to -14 from +4, the biggest drop in 4 years and it’s at the lowest level since early 2012.